Acosta Inc. Rating Lowered To 'CCC' From 'CCC+'; Debt Ratings Lowered; Outlook Negative

  • U.S.–based sales and marketing agency Acosta Inc. entered into an amendment to its credit agreement with certain lenders to temporarily extend the maturity date on a portion of its revolving credit facility.
  • Given the temporary extension and the company's sustained weak operating performance, we believe risk of a liquidity crisis or a restructuring event within the next 12 months has increased considerably.
  • We are lowering our issuer credit rating on Acosta to 'CCC' from 'CCC+', our issue-level rating on the company's senior secured bank credit facility to 'CCC' from 'CCC+', and our issue-level rating on its senior unsecured notes to 'CC' from 'CCC-'. The recovery ratings remain unchanged at '3' and '6', respectively.
  • At the same time, we are assigning our 'CCC' issue-level rating and '3' recovery rating to Acosta's extended revolver. The '3' recovery rating indicates our expectation for meaningful (50%-70%; rounded estimate: 55%) recovery in the event of a payment default.
  • The negative outlook reflects the potential for a lower rating if we believe a restructuring or distressed exchange is imminent.
NEW YORK (S&P Global Ratings) Feb. 7, 2019—S&P Global Ratings today took the 
rating actions listed above.  The downgrade reflects the increased potential 
for a distressed exchange after the recent amendment to Acosta's credit 
agreement. While the company temporarily extended the majority of the 
commitments on its revolver by six months to March 26, 2020, the extending 
lenders reduced their total commitments by 5% and increased their pricing by 
100 basis points. This will likely lead to further pressure on the company's 
already weakening cash flow. In addition, liquidity could become more 
constrained after a minority group of lenders chose not to extend their 
commitments beyond September 2019. We believe management is seeking to secure 
new working capital financing in the next few months to address its 
soon-to-be-reduced borrowing capacity. However, if it is not successful, we 
believe the company will strongly consider a distressed exchange, particularly 
given the very weak trading levels of its debt.

The negative outlook reflects the potential for a lower rating if we believe a 
restructuring or distressed exchange is imminent. This could also occur if the 
company cannot obtain new working capital financing in the coming quarters, or 
if free cash flow is weaker than expected and Acosta does not replace the lost 
borrowing capacity from its maturing revolving credit facility commitments in 
September, potentially leading to a liquidity crisis. While less likely, we 
could also downgrade the company if we believe it will default on its 
financial covenant.

We could take a positive rating action if Acosta secures new working capital 
financing on reasonable terms, operating performance stabilizes, and the 
company materially improves free cash flow generation.
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